Tracking the market and economic trends that shape your finances.

Arizona, Nevada sue Bank of America over loan modifications

December 17, 2010 | 12:54
pm

In a lawsuit echoing recurring complaints about mortgage lenders, Arizona accused Bank of America Corp. of failing to implement anti-foreclosure measures it had promised in March 2009 to settle accusations that its Countrywide Financial unit had defrauded consumers.

Hours later Friday, Nevada also sued the Charlotte, N.C., bank, accusing it of widespread deceptions in promising borrowers help with loan modifications that were never delivered. Arizona and Nevada are among the states with the highest levels of foreclosures in the aftermath of the housing bust and deep recession.

In announcing her state court lawsuit, Nevada Atty. Gen. Catherine Cortez Masto said the bank had exhibited "callous disregard for providing timely, correct information to people in their time of need."

Arizona Atty. Gen. Terry Goddard said Bank of America, which acquired Countrywide Financial Corp. of Calabasas in 2008, has repeatedly violated the terms of a court order requiring good-faith efforts to modify loans for 13,000 borrowers.

Goddard, a Democrat, unsuccessfully challenged Republican incumbent Arizona Gov. Jan Brewer this fall and leaves the attorney general's office next year. In a statement responding to the lawsuits, Bank of America referred to those events.

"We are disappointed that the suit was filed in General Goddard's last days in office, particularly because we and other major servicers are currently engaged in discussions led by Attorney General Miller in Iowa to try to address foreclosure related issues more comprehensively," the bank said. "In addition to our own, ongoing program improvements we have committed to, we believe that is the approach that will best serve Arizonans who need assistance.”

The bank said problems in Nevada also would be best addressed through its existing anti-foreclosure efforts there and through the negotiations with the Miller-led coalition, which involves all 50 states.

“We share Attorney General Masto’s goal of helping Nevada homeowners. We are disappointed that the suit was filed at this time, however," Bank of America said.

Loan modifications that lower mortgage payments are supposed to benefit borrowers, by keeping them in their homes; banks and loan investors, by costing them less than foreclosures; and neighborhoods, by reducing the number of vacant eyesore properties.

But with the foreclosure crisis in its third year, troubled borrowers increasingly have accused banks of acting in bad faith by promising them permanent modifications that are never delivered.

In an interview, Goddard said many distressed Countrywide borrowers in his state have been left in limbo as Bank of America failed to make timely decisions on their status, leaving them financially worse off when permanent modifications are denied after many months.

Goddard said Bank of America failed to provide justifications for denials of modifications, misled borrowers into thinking they had to miss payments to obtain modifications, and initiated foreclosure proceedings while trial loan modifications were in place -- all in violation of its settlement with the state last year.

The suit, filed in Maricopa County Superior Court, seeks up to $25,000 for each violation of the consent judgment and up to $10,000 for each violation of the Arizona Consumer Fraud Act.

In a news release, Goddard noted that Bank of America is the nation’s largest home-loan servicer and said the bank "should be leading the way out of the country’s foreclosure crisis."

Instead, he said, “Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis. It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole.”

The Nevada lawsuit seeks damages on behalf of borrowers in that state who allegedly were victimized by numerous deceptive loan modification and foreclosure practices.

Masto said employees handling modifications accused the bank of understaffing the effort with undertrained employees, creating a "chaotic" process for borrowers.

The bank reprimanded employees for spending too much time helping any borrower, according to authorities in Nevada and Arizona.

"They were told to get borrowers off the phone in five minutes, forcing them down the road to foreclosure," Goddard said.